All posts tagged France

The worst may be behind for French bank Société Générale. Over the past year and a half the bank has considerably strengthened its balance sheet, reduced its dependence on volatile wholesale markets, and sold assets worth several dozen billions to meet Europe’s new stringent capital rules.

As of the end of December, the Paris-based lender, France’s second largest publicly traded bank, had a core tier 1 ratio–a key financial ratio to measure a bank’s financial strength–of 10.7%, above most of its European peers.

But while the bank has been able to reassure jittery investors about its financial solidity, its ability to boost growth in a difficult economy seems uncertain, say analysts.

Société Générale Wednesday announced a fourth-quarter loss of 476 million euros, hit by an accounting charge related to its debt. The loss reflects an improvement in investor confidence, as it stems from a rule that requires banks to book a loss if the price of their own debt rises.

France’s Total looks assured to retain a major Ugandan oil license days after making a new discovery, a huge reward for the company’s ambitious exploration program in the East African nation’s fledgling oil sector.

After drilling three dry wells, the oil major struck oil in the fourth well in December, marking a significant development in its quest to retain operatorship of the highly prospective Block 1 A. It’s right next to Total’s other block in the region, which houses Uganda’s largest oil fields such as Buffalo and Girafee.

The development guarantees Total an assured presence in the northern part of Uganda’s Lake Albertine rift basin, which is also close to its 74,000-square-mile exploration block in neighboring South Sudan. With the Ugandan license secure, Total looks set to realize its long term ambition of building a regional oil pipeline export hub to transport crude from South Sudan, Uganda and Kenya to world markets via the East African coast.

After the excitement of Mega Monday, news from the British Retail Consortium that Christmas footfall has already started to build and mixed results from some of Europe’s biggest retailing names, we thought we’d take a look at which retailers are the likely winners in terms of sales this Christmas. As well as those which may struggle to keep the tills jangling over the crucial Christmas period.

It’s off to a good start, with sales for the week to Dec. 2 coming in 9.3% higher than the same week last year.

Maggie Porteous, head of selling operations, said: “All areas from toys, to bedding and ready-made curtains, to tablets are performing very well. As well as buying gifts and getting their homes ready for the festive period, customers are also ensuring they keep warm with cold-weather clothing and heaters selling fast.”

Marks & Spencer may not do as well as it hopes this Christmas, despite its glitzy advertising campaign. Analysts at Barclays reckon the high street clothing, homeware and food retailer is on track to lose market share in general merchandise over the festive period, as rivals improve their product offerings. They also believe M&S faces stiff price competition which won’t help its cause as cash-strapped shoppers hunt out bargains.

While M&S jumpers and underwear may not be under the Christmas tree, its food is likely to make it onto many a festive menu. Analysts think food sales at M&S will once again benefit as consumers treat themselves to more expensive, better quality food and drink for Christmas.

Despite being a popular choice for toys in the run-up to Christmas, Argos will likely remain in the doldrums because it is heavily dependent on consumer electronics and home enhancement both of which are suffering in the austere British economic climate, according to Jamie Merriman at Bernstein Research.

“The recent Amazon data for the U.K. indicates what everyone already believed, that it is growing extremely quickly and this is more of a threat to Argos,” she said. Argos is owed by London-listed Home Retail Group.

Tesco, the U.K.’s biggest retail group, is a possible winner this year. It shouldn’t be hard for it to beat last year’s 2.3% fall in like for like sales (which exclude sales from new selling space) for the six weeks to Jan. 7. Investors will be looking for a significant return to growth but with non-food sales still under pressure, Espirito Santo analyst Caroline Gulliver is cautious.

France

We all know the French love their food. So, perhaps it’s not surprising to hear that French hypermarkets are tipped as likely winners this Christmas, according to analysts…

French politicians have continued to harshly criticize steel titan ArcelorMittal, even after the government reached a deal with the company last week to avoid mandatory layoffs at its embattled Florange steel plant in eastern France.

However, according to documents seen by The Wall Street Journal, the French government may be on thin ice with its allegations of broken promises. The latest salvo of criticism may only serve to further damage France’s reputation as a stable destination for corporate investment, said analysts.

ArcelorMittal pledged Saturday to invest €180 million over the next five years at the processing facilities of the Florange plant, promised not to permanently close two blast furnaces at the site and said it would negotiate with the unions to avoid compulsory redundancy regarding more than 600 threatened jobs.

This was a concession to the French government, which had threatened to nationalize the whole Florange plant to save the jobs. Nevertheless, the French authorities kept up their barrage of criticism even after the deal.

“There has been an agreement but there is no confidence,” French Ecology Minister Delphine Batho told France’s iTele network on Sunday. “[ArcelorMittal CEO Lakshmi] Mittal has never kept his promises in the past,” she said.

Ms. Batho was echoing comments made prior to the deal by French Industrial minister Arnaud Montebourg, who told the French newspaper Les Echos, “we don’t want Mittal in France any more because they didn’t respect France.”

Analysts said the ministerial comments may only serve to scare foreign investment from France. “These remarks were unhelpful because they didn’t do anything to solve the problem,” said steel analyst Hermann Reith of BHF Bank.

The spat over broken promises reaches back to before ArcelorMittal even existed…

Of all the world’s struggling steelmakers, the largest producer, ArcelorMittal, faces the most acute dilemma. It wants to close down a portion of its French business, a move it says is essential to address global overcapacity in the industry. The French government says the whole business must remain operational in order to save jobs, or it will be nationalized.

These competing political and economic forces put the company in a quandary. It could appease the French government and keep its two blast furnaces temporarily idled, but this would do nothing to solve the problem of overcapacity. Or it could close the furnaces and see its entire French plant seized by the government, potentially causing cascading problems throughout its regional supply chain.

Neither choice is very palatable and in the current difficult market it’s hard to say which poses a bigger threat to the company, say analysts.

“ArcelorMittal has to walk a fine line between appeasing the government by keeping open somewhat dilutive blast furnaces and potentially restructuring its regional steel supply chain,” said Jefferies mining analyst Seth Rosenfeld.

ArcelorMittal has said it wants to close its two blast furnaces at the Florange plant in eastern France, eliminating about 600 jobs in the process, because they are too small and located a long way from raw material sources. The two blast furnaces were temporarily idled more than a year ago due to protracted steel demand weakness in the European Union.

They are part of the reason why the company is on track in 2012 to deliver a second successive year of operating losses at its European flat steel products division…

French President François Hollande arrives for the opening ceremony of the ASEM Summit in Vientiane November 5, 2012.

France has been hit by the ongoing decline of its competitiveness for at least the past 10 years. Unemployment is now back above the 10% rate, the trade balance deficit has reached record highs, and the government is struggling to rein in its budget while trying to revive the country’s industries and prevent outsourcing. Yet the competitive edge from nuclear and the potential bonanza from shale gas remain ignored.

In a report commissioned by the French government looking into the best ways to boost France’s competitiveness, Louis Gallois, the former chairman of EADS, said that France’s potential shale gas reserves could be an energy bonanza for the country, helping decrease gas imports and ultimately prices, notably for industry.

Mr. Gallois insisted that the shale gas boom helped the U.S. to re-industrialize part of its economy and had “very significantly” lowered the American trade deficit.

Mr. Gallois’s report also noted that the network of nuclear reactors in France helped deliver cheaper energy than elsewhere in Europe. Mr. Gallois suggested that the French government should allow the reactors to run the course of their life and let the nuclear regulator alone decide their ultimate fate.

This was music to the ears of many French business leaders who had been worried that President François Hollande would deliver on his electoral pledge to close some reactors even though they were fit to continue producing power. Many business leaders are also concerned that Mr. Hollande will renew the ban on shale gas exploration through hydraulic fracturing, or fracking, even though France is believed to harbor one of the biggest shale gas reserves in Europe.

But even before the report was out Monday, the Prime minister’s office reaffirmed its stance: whatever the recommendation, there won’t be any shale gas exploration in France as long as hydraulic fracturing, or fracking, is used to extract the natural gas.

Europe’s financial markets are opening flat, with traders waiting for political developments in Greece and news from the G-20 meeting in Los Cabos, Mexico.

So it’s not surprizing to see equity analysts taking a cautious approach, with the banking sector largely in focus.

As the markets continue to assess the impact of the Greek election over the weekend, Morgan Stanley moves to a more defensive position regarding the French banking sector, and has downgraded Societe Generale to equalweight from overweight as a consequence. This follows the decision of the U.S. bank’s economists to increase the subjective probability of a euro zone ‘divorce’ scenario to 35% within 12-18 months, from 25% within five years.

This near bear case scenario carries a 35% weighting in Morgan Stanley’s price targets, resulting in the downgrade, and would translate into a capital deficit of €54 billion for the French banks.

On the flip side, Bank of America Merrill Lynch has upgraded Standard Chartered to buy from neutral, saying the British multinational banking and financial services company’s valuation now looks appealing.

Just a day after Francois Hollande was sworn in as France’s president, one chief executive from across the English Channel welcomed the new leader with a less-than-cordial riposte on the controversial Tobin Tax.

“On President Hollande’s enthusiasm for the Tobin Tax, I wish him good luck. I endorse his effort to use the Tobin Tax upon his own nation. He is democratically welcome to do so,” said Michael Spencer, CEO of FTSE100 interdealer broker ICAP and former treasurer of U.K. Prime Minister David Cameron’s Conservative Party.

“However, his effort to stuff the Tobin Tax down British throats will fail and quite properly fail. It is rather bad form that people want to impose taxes on other countries,” Mr. Spencer said.

“Clearly, the Tobin Tax is always designed as a tax on the City of London that wouldn’t affect anybody else very much.
“Our government knows this full well…And they have said many times they will not adopt the Tobin tax in the U.K.,” Mr. Spencer said.

European Commission president Jose Manuel Barroso in March said this tax on the financial sector, which is meant to help curb risky trading, could slash by half the member states’ contributions to the EU budget.

The Commission estimates that the tax could bring in €80 billion in 2020, of which two-thirds, or €54 billion euros, would fund the EU budget.

But one complaint from many U.K.-based bankers and other financial institutions–like Mr. Spencer’s ICAP–is that the Tobin Tax is skewed against the City of London.

One swallow does not a summer make, as the saying goes. But the French car registrations data out Wednesday were a welcome ray of sunshine for the sector after the doom and gloom of recent months.

To be sure, the market continued to contract in April, down 1.6% year-on-year, but that’s a far cry from the 30% drop recorded in the first three months of this year.

However, that massive first-quarter contraction chiefly reflected a huge bulge in the corresponding period of 2011 as car manufacturers delivered cars that were ordered before a scrapping incentive scheme was phased out at the end of 2010.

April’s–relatively-good showing to a large extent reflected an 8.9% rise in sales at Peugeot Citroen, helped by the launch of its new Peugeot 208 compact.

“In the relationship we are in, I see none of the signs that herald divorce,” the French president told journalists in his traditional New Year address to the press on Tuesday evening.

For Nicolas Sarkozy those signs include boredom and an absence of demands from a partner.

“Our relationship as a couple is very much alive,” said Mr. Sarkozy, who trails Socialist candidate François Hollande in the polls, with less than three months to go to elections. And the 57-year-old speaks from experience: Mr. Sarkozy is twice divorced, including just a few months after the May 2007 election that brought him to power.

The president warned his loving partner (the press) that he has seen attempts to have him replaced and to place hopes elsewhere where the grass is always greener. “Up until now, you’ve always come back,” he said.